Global Supply Chain: 'Don't ask 'what is being counterfeited, but what isn't!'

The extended period of what can only be termed as Monetary Malpractice, has
resulted in global over-supply and an unprecedented production glut, rather
than the increased demand sought for economic stimulus by policy planners.
What comes with a supply glut is a lack of pricing power, extreme competition
and unfortunately the human trait to "cheat" when under mounting pressure.

In our just concluded research on the the seriousness of the rate of product
quality deterioration in the global supply chain due the central bankers policies
of "cheap money", Charles Hugh Smith and I laid out our finding earlier this
week in a 35 minute video (see: Abstract)
entitled: Bankers Crippling the Global Supply Chain. We conclude that
pressures to cheat are now not just the purview of Wells Fargo. Additionally,
the Samsung's Galaxy Note 7 battery problem is only the tip of the iceberg
on quality concerns which is likely to soon emerge.

Nairobi's Kirinyaga Road is the kind of dusty, run-down thoroughfare that
sits on the fringes of most African city centers: Cars and motorbikes weave
their way through throngs of shoppers browsing storefronts crammed with cheap
electronics, housewares, and clothing.

One Tuesday morning last April, a blonde woman from Sweden stood out from
the crowd, leading nine Kenyan officers to a storefront she believed was
selling counterfeit goods. But they weren't after knock-off handbags, watches
or sunglasses. The shop specialized in a far less sexy -- and ultimately
more dangerous -- fake product: ball bearings.

Overseeing the raid was Tina Aastroem, head of brand protection for SKF
AB, a Swedish maker of bearings. Aastroem had cased the store six months
earlier, concluding that many SKF products there, as well as those of rival
manufacturers FAG and
Timken Co., were fake. In the raid, her team spent hours sorting through
boxes stacked from floor to ceiling--fueled by chicken ordered from the local
KFC--and found $100,000 of counterfeit bearings for cars and other vehicles.

"It was about three tons that had to be inspected, lifted, packed and carried," Aastroem
said. "You don't have to go to the gym to work out if you do this kind of
work."

Dangerous, Costly

Everything from shoe
polish to medication to car parts is pirated. Estimates of the scale
of the problem range from $461
billion -- 2.5 percent of global trade -- the Organization for Economic
Co-Operation and Development says, to some $1.8 trillion, according to
calculations last year by the International
Chamber of Commerce. And while makers of luxury goods -- among the
most prominent counterfeited products -- lose profit from the trade, there's
little risk to consumers. In the case of more mundane stuff like bearings,
forgeries can be dangerous as well as costly.

"Many people believe piracy is limited to handbags and other similar products,
but the more serious issue is industrial companies," said Ann-Charlotte Soederlund,
co-founder of the Global Anti-Counterfeiting
Network, an umbrella organization of fake-fighters around the world. "The
effects can be immensely larger than the consequence of a fake handbag."

Formula 1

Finnish Formula 1 driver Mika Haakkinen pulled out of the 1998 San Marino
Grand Prix when his gearbox failed due to fake bearings. Knock-off building
materials have been shown to catch fire. Counterfeit electronics have caused
military equipment to fail. And SKF says a sham bearing in a swimming pool
pump sparked a fire that burnt a house to the ground.

Sandvik AB, a Swedish manufacturer of mining equipment and steel products,
hires contractors to scour websites and orders suspicious products to test
them in Sweden. Schneider Electric SE, a producer of power equipment, has
developedbar
codes and labels that can be checked with ultraviolet light to detect
counterfeits. Vallourec SA, a French maker of pipes for the oil and gas industry,
is stepping up its fight against fakes as it has detected forged certificates
that are meant to prove the authenticity of its products.

Dishwashers, Nukes

"The number of reported falsified certificates has increased in recent years,"
said Anais Eiden, Vallourec's senior legal manager for intellectual property.
"Counterfeiting is a risk and we act to mitigate it."

Bearings from SKF, the world's No.1 manufacturer of the steel balls, are
used in everything from dishwashers to nuclear power plants to make parts
spin more freely and reduce friction. Forgeries of its products typically
originate in China, often from factories where legitimate competitors make
their products, Aastroem said.

Workshops there buy unmarked bearings, stamp them with the SKF brand and
put them in packaging designed to look genuine, the company says. From China,
the bearings are shipped worldwide to customers who often believe they are
buying legitimate parts, frequently at distributors like the one in Nairobi.

Aastroem runs a team of 10 full-time and 50 part-time employees who look
for fakes at hardware stores and spare parts shops across the globe. That
approach is unusual among big industrial companies, which more often hire
local contractors to investigate and coordinate with police.

Local Market

She says she goes on about 10 raids a year, and that she often will poke
around shops while traveling to look for knock-off products. The Nairobi
raid was spurred after she visited Kenya for a Swedish Embassy event and
took some time off to check the local market.

"I stand in front of a shop smiling like I'm posing for a tourist photo,
but what I actually want is photos of the shop," Aastroem said.

But even Aastroem sometimes relies on customers to identify knock-offs.
One client in Australia contacted SKF just before installing a large bearing
in a power plant that didn't fit quite right. It turned out to be counterfeit.

"If it had failed, a third of the state of Victoria would have suffered
an outage," Aastroem said.

In the Nairobi raid, one of 130 SKF has participated in this year, about
95 percent of the SKF bearings Aastroem found were knock-offs. When the shop
owner arrived to see what the fuss was about, he tried to bolt but was soon
caught and arrested, Aastroem said. He paid a fine and the fake bearings
were destroyed. Participating in such raids helps Aastroem figure out how
vendors sell their wares and the kinds of customers who buy -- knowledge
that helps the company to track down fakes and provide better information
to clients about potential pitfalls of using knock-off goods.

"If you're not there you don't understand the business model," she said.
SKF's hands-on approach "is a significant investment, but it does pay off."

Learn how these problems actually stem from the unintended consequences of
current Central Bank monetary policy and what is termed as Financial
Repression.

Gordon T. Long has been publically offering his financial and economic writing
since 2010, following a career internationally in technology, senior management & investment
finance. He brings a unique perspective to macroeconomic analysis because
of his broad background, which is not typically found or available to the
public.

Mr. Long was a senior group executive with IBM and Motorola for over 20 years.
Earlier in his career he was involved in Sales, Marketing & Service of
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Manager, Four Phase (Canada); Vice President Operations, Motorola (MISL -
Canada); Vice President Engineering & Officer, Motorola (Codex - USA).

After a career with Fortune 500 corporations, he became a senior officer of
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Gordon T. Long is a graduate Engineer, University of Waterloo (Canada) in
Thermodynamics-Fluid Mechanics (Aerodynamics). On graduation from an intensive
5 year specialized Co-operative Engineering program he pursued graduate business
studies at the prestigious Ivy Business School, University of Western Ontario
(Canada) on a Northern & Central Gas Corporation Scholarship. He was subsequently
selected to attend advanced one year training with the IBM Corporation in
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